Barratt upped to buy as Liberum says potential cliff edges being negotiated successfully

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Barratt Developments PLC (LON:BDEV) has been upgraded to ‘buy’ from ‘hold’ by analysts at Liberum as the broker increased its margin assumptions for the housebuilder after revisiting their outlook for home prices.

In a note on Friday, Liberum also hiked its price target to 735p from 690p, saying they no longer thought house price will “drop meaningfully through the middle of [2021]” as they expected homebuyer’s “remarkable determination to endure”.

READ: Barratt Developments sales hit record but cladding costs slow profits

“The highly discussed cliff edges of Help to Buy, Stamp Duty and furlough are being negotiated successfully”, Liberum said, and as a result they now thought the central case for house prices was now “too cautious” and that the “momentum from buyers has carried through from the second half of (calendar) 2020 into January”.

“The stock market appears fixated on the perceived cliff edge in March/April as Help to Buy 1 is replaced by the more restrictive Help to Buy 2, the Stamp Duty holiday comes to an end and the government’s furlough scheme ends (in April). But, the transition to Help to Buy 2 appears to be happening without slowing demand and we think the benefit of the Stamp Duty holiday has been overplayed in the press, as the average saving is only around 2% on the whole housing transaction. Buyers do not appear reluctant to be buying properties for delivery beyond March.”, Liberum said.

Liberum wasn’t the only broker to positively reassess its view on Barratt, with analysts at Deutsche Bank hiking their price target for the company to 792p from 767p and retaining their ‘buy’ rating following what they said were “strong interims” from the company on Thursday where it reported record sales in the six months to end-December 2020 as well as a resumption of dividend payments.

Analysts at JP Morgan also hiked their targets on the back of Barratt’s results, raising the target price on the stock to 800p from 780p and retaining an ‘overweight’ rating.

Barratt’s shares rose 2.2% to 704.8p in mid-morning trading.

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